Bitcoin at a $100 Premium Against Brexit Pound

Bitcoin is currently about $100 more expensive to buy with Great British Pound (GBP) than with the dollar or euros.

Likewise other cryptos are at a slight premium against the pound as the latter has seen considerable volatility – mostly downwards – ahead of a climax in the Brexit show.

Cryptos at a premium against the pound, November 2018.

The British Prime Minister, Theresa May, has announced a deal which is now expected to be signed at an emergency EU summit on November 25th.

The market you’d think would have been happy and it was for a brief period, but the Brexit Secretary resigned – the second Brexit Secretary to do so. He was followed by others and they were followed by a pound plunge:

The pound at near parity with the euro, November 2018.

That drop on November 14th is one of the biggest one day drop in the pound, but of course it is not even a blip compared to the drop when Brexit results were announced in 2016.

Since then, the pound has gotten weaker and weaker and now it is – quite amazingly – at near parity with the euro, a very surprising first.

From two dollars to the pound to near parity in just 8 years. November 2018.

You can see there the Brexit weekly candle in June 2016. Around $1.5 to the pound would have probably been the fairly straight line otherwise, but according to markets, Brexit has fundamentally changed the relative value of the pound.

It saw a low of $1.19, before racing again towards $1.5. That was the recent top, with it going down since April and especially recently.

In fairly simple terms, the value of a fiat money is determined by the amount of exports, as in by how much others need or want the pound to buy British goods.

If you are importing more, then you are kind of selling your money for that of whatever nation you’re importing from. If you are exporting more, then others are selling their money for your pounds.

Obviously then there’s the speculative element and there’s central bank intervention, the trust factor or stability, just how widely the fiat is used and so on. Here though the market is saying the British economy will be weaker, so the pound should be weaker, so they sold the pound accordingly.

Is that true? Well, first of all, what they are calling a deal is not actually a deal. It is more a continuation of the status quo until a trade deal is or is not agreed. This is instead a withdrawal agreement, but a withdrawal agreement that binds Britain into a customs agreement or into EU rules – minus free movement – if there is no trade deal.

If this gets through Parliament, then Britain will effectively stay in EU until 2020 during a transition period. Nothing changes until 2020 except that Britain would not have a seat at the table, would not have representation in the European Parliament. They’re effectively out, but not quite yet.

The dispute concerns what happens next. During this transition period, EU and UK are meant to agree the actual deal, a free trade agreement.

That’s of course a very complex thing and chances of it being agreed in two years are close to zero. There can be an extension for a limited period, but if no trade agreement then the backstop will be triggered – or what they are calling “the deal.”

The deal is a single customs territory between the European Union and the United Kingdom. According to the BBC:

“Northern Ireland will be in a deeper customs relationship with the EU than the rest of the UK; it will also be more closely aligned with the rules and regulations of the EU single market.

As long as the backstop is in operation, the UK will be subject to ‘level playing field conditions’, to ensure it cannot gain a competitive advantage while remaining in the same customs territory.

The UK cannot leave the backstop independently, it needs to be decided together with the EU.”

Moreover, Britain can not have its own trade agreement say with the United States or any other country as they’ll have to go through the EU.

Thus this isn’t checkers where blockchain tech was to be used to keep track of goods that make their way to EU. This is instead what EU wanted, effectively a virtual border between Britain and Northern Ireland.

The latter has representation in Parliament. Northern Ireland’s Democratic Unionist Party is in coalition with May. They will vote against the deal.

Brexiters obviously think this is a ploy by EU to keep Britain trapped in this “deal” or backstop, with UK seemingly having no card to play when it comes to trade negotiations.

Without such card one would necessarily ask why EU would give UK any trade deal that supersedes this customs arrangement. In the absence of it, then UK would be weaker in economic foreign policy as it would not be able to form its own trade links with US, India or whoever else.

Making this a Brexit limited to just the question of immigration – or free movement of EU citizens – when of course it is all about the economy especially now that the terrorism threat appears to have considerably subsided.

So Parliament might vote this down, meaning Theresa May would have to go, with someone else, perhaps David Davis, going back to the EU to demand at the very least a unilateral exit mechanism from the backstop on the condition of say a referendum outcome. He would probably also want the ability to make trade deals with US and others if it ends up in a backstop situation.

If EU agrees, then that could more easily be sold as a compromise to the British public, but the European public might see it as too sweet.

Such deal however would keep the two political blocks closely together and on friendly terms, able to compete while still being very close allies.

It would be the checkers deal, which they argued against because it gave away too much too quickly. The EU apparently has not heard them at all and has seemingly given May nothing, just as it gave David Cameron nothing which led to the referendum.

So Nigel Farage is now back on telly, and while off it, is apparently enjoying some dinner with Boris Johnson. What they plan isn’t very clear, but no choice is easy.

There may be a replacement of May, but EU will probably come back with the same thing. EU has said long ago that there will be no trade negotiations before the withdrawal agreement. The backstop is however a trade negotiations of sorts.

They won’t agree to Britain having the ability to enter into trade agreements with other nations without a sort of virtual border between NI and Britain or otherwise a hard border between NI and Ireland. In the latter case it would be up to Ireland to put up such border, which they probably won’t. Yet you’d need some way to check that goods valid in UK do not enter EU or vice versa.

The Brexiteers have not come up with something. Labor is pretty happy with a customs union, but they’ll vote down this deal because it lacks the freedom to trade with other nations.

Thus a new leader would be pointless as EU is unlikely to move. A general election would be pointless because it is hardly any different than a new leader. So maybe this should go back to the people with two choices: accept the deal or Brexit without a withdrawal agreement.

The option of staying in EU shouldn’t be available because they already said they don’t want to stay in EU. So the choice should be limited to leave with a deal or leave without a deal.

It is unlikely such referendum will be given because at this stage they appear to be fairly close to reaching an agreement that would be acceptable to most. Just add the freedom to enter into trade agreements with other nations to the backstop, and this is pretty much done.

Otherwise if this went to a referendum on whether to accept or not the deal, the public may well vote against it. Parliament having such choice, however, is fairly legitimate. It’s a complex matter and there is no easy decision so the elected should make it.

If Parliament does vote down the deal, then EU should learn from its hard stance against David Cameron and give concessions because this is frankly EU’s Brexit.

Had they give Cameron something to take back home, then he wouldn’t have called a referendum. They clearly misjudged and they may be misjudging again because a no-deal Brexit out of the EU this March isn’t out of the question.

That possibility might be what the markets are pricing-in regarding the pound’s recent price movements, with cryptos appearing to be a sort of hedge going by their premium.